Citigroup Inc., the world's largest financial services company, would pay HK$845 million (US$109 million) for a 16.4 percent stake in Hong Kong's Silver Grant International Industries Ltd. in a bid to expand its distressed asset business in the Chinese market, Silver Grant announced Monday.
Under the agreement, Silver Grant, one of the country's largest property and infrastructure project investor, will sell 169.45 million new shares and a US$52.5 million convertible note to Citigroup.
Silver Grant would sell the new shares or 9.75 percent of its enlarged share capital to Citigroup at HK$2.63 each, representing a 19.69 percent discount to the closing price of HK$3.275 on November 3, the company said.
Meanwhile, the convertible bond carries a right to convert into company shares at HK$2.95 per share.
Net proceeds of US$108 million would be used for investing in non-performing loans and other distressed assets, Silver Grant said.
After the new shares were sold, Citigroup would be the second-biggest stakeholder of Silver Grant, the Hong Kong company said in a statement.
Its largest shareholder is China Cinda Asset Management Corp., which was set up in 1999 to help dispose of bad loans at China Construction Bank and owns 18.84 percent of Silver Grant.
New York-based Citigroup is vying with global investment banks including Goldman Sachs Group Inc. and Morgan Stanley to buy bad assets in China.
According to the latest statistics published by the China Banking Regulatory Commission, the country's major commercial banks had non-performing loans (NPLs) valued at 1.699 trillion yuan (US$204.7 million) at the end of September.
"Citigroup have gotten in bed with one of the major and credible players in the market. Once the domestic market for distressed assets breaks wide open, they'll know how to collect," said Tim Clissold, former general manager of Goldman's NPL business in China.
(Xinhua News Agency November 9, 2004)